Structured Notes Likely To Continue to Gain Popularity
Portfolio Diversification and Increased Education will be Key Factors in Growth According to an Incapital Survey of Industry Professionals
BOCA RATON, Fla. and CHICAGO, Dec. 12, 2012 /PRNewswire/ -- Structured notes are likely to surpass structured certificates of deposit (CDs) in popularity in the coming year, according to a survey of financial professionals conducted by Incapital, a leading underwriter and distributor of fixed income and other financial products.
The survey found that the majority of respondents believe that non-principal protected notes specifically, as opposed to principal protected notes and CDs, have the most growth potential among investors of all structured products in the near future.
"We've noticed a shift in investors' appetite that is likely to continue into 2013, as more and more financial professionals are gravitating toward non- or partially-protected notes," said Glenn Lotenberg , Managing Director at Incapital. "Our survey found that in this low rate environment, advisors are incorporating them into investors' portfolios as a more efficient way to enhance yield and as a means to build equity exposure."
Incapital's non-scientific survey of nearly 100 financial professionals was conducted at the 2012 Structured Investments Conference on October 25 in New York. The survey assessed the overall sentiment of financial professionals surrounding structured products and their perceived key attributes and challenges.
Interestingly, the survey revealed that an overwhelming majority – 60 % of respondents- view education as the key component in making structured products more popular. Education far outweighed any of the other factors such as greater liquidity, simpler structures and lower fees as driving elements in building a stronger presence for structured products in investors' portfolios.
"Education is clearly fundamental to the wider understanding and adoption of structured products in the investment community," said Derek Rhodes , Vice President in Incapital's Structured Products Group. "There are a large number of investors for whom structured notes could be an appropriate investment vehicle. Many financial advisors and their clients, however, lack a clear understanding of what these notes have to offer, how they work, the relevant risks and the impact they have on a portfolio. We encourage advisors to visit our educational website structuredinvestments.com for guidance in demystifying these instruments.
When it comes to how financial advisors are using structured products, adding equity exposure to the portfolio (34%) was found to be the primary reason, while 26% felt that structured products were best used to replace plain vanilla income products such as CDs, and 20% use them for portfolio diversification.
Additionally, the survey found that the greatest attribute of structured products is enhanced yield, with 42% of respondents finding them most valuable for that purpose. Principal protection, access to asset classes otherwise not available and the ability to customize structures followed as additional reasons, ranging as the key attribute for 15 – 17% of respondents.
Incapital was founded in 1999 with the mission of providing securities firms and individual investors more efficient access to corporate bonds. While Incapital's expertise in underwriting and distributing investment-grade corporate bonds remains a core competency, the firm now originates and distributes offerings across multiple asset classes. In addition to its broker-dealer and bank partners, Incapital now serves institutional investors and wealth managers. With approximately 150 employees in multiple offices in North America, the firm represents over 300 issuing entities and serves 800+ distribution partners. Incapital continues to provide market leadership with a growing range of product offerings, strong strategic partnerships and innovative technology.
More information about Incapital is available at incapital.com
The investment products discussed herein may be considered complex investment products. Such products may contain unique risks, terms, conditions and fees specific to each offering. Depending upon the particular product, risks may include, but are not limited to, issuer credit risk, market risk, the performance of an underlying derivative financial instrument, formula or strategy, and foreign currency risks. Return of principal may not be guaranteed and may be subject to credit risk of the issuer or the performance of a derivative instrument, formula or strategy. Additionally, unless otherwise specified in the particular offering documentation, the products discussed herein are not FDIC insured, may lose value, and are not bank guaranteed. You should not purchase a complex investment product or make an investment recommendation to a customer until you have read the specific offering documentation and understand the specific investment terms and risks of such investment.
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